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FIN 370 Week 2 Apply: Time Value of Money Homework
Review the Week 2 “Practice: Time Value of Money Quiz” in Connect®.
Complete the Week 2 “Apply: Time Value of Money Homework” in Connect®.
Note: You have only one attempt available to complete assignments. Grades must be transferred manually to eCampus by your instructor. Don’t worry, this might happen after your due date.
With regard to money deposited in a bank, future values are
Multiple Choice
are completely independent of present values.
larger than present values.
equal to present values.
smaller than present values.
Time value of money concepts can be used by
Multiple Choice
CFOs and CEOs to make business decisions.
individuals doing personal financial planning.
All of these choices are correct.
investors calculating a return on an investment.
Which of the following statements is correct?
Multiple Choice
$100 to be received in the future is worth more than that today since it could be invested and earn interest.
$100 to be received in the future is worth less than that today since it could be invested and earn interest.
Discounting is finding the future value of an original investment.
The Rule of 72 calculates the compounded return on investments.
What is the future value of $2,000 deposited for one year earning 6 percent interest rate annually?
Multiple Choice
$120
$4,120
$2,120
$2.000
How much would be in your savings account in 10 years after depositing $50 today if the bank pays 7 percent interest per year?
Multiple Choice
$35.00
$535.00
$690.82
$98.36
Which of the following statements is incorrect with respect to time lines?
Multiple Choice
Cash flows we receive are called inflows and denoted with a positive number.
A helpful tool for organizing our analysis is the time line.
Interest rates are not included on our time lines.
Cash flows we pay out are called outflows and designated with a negative number.
What is the future value of $700 deposited for one year earning 4 percent interest rate annually?
Multiple Choice
$1,428
$728
$28
$700
Approximately what interest rate is needed to double an investment over six years?
Multiple Choice
6 percent
100 percent
12 percent
17 percent
What is the present value of a $750 payment made in three years when the discount rate is 5 percent?
Multiple Choice
$647.88
$712.50
$868.22
$646.96
How are present values affected by changes in interest rates?
Multiple Choice
One would need to know the future value in order to determine the impact.
The higher the interest rate, the larger the present value will be.
The lower the interest rate, the larger the present value will be.
Present values are not affected by changes in interest rates.
Approximately how many years does it take to double a $300 investment when interest rates are 8 percent per year?
Multiple Choice
11 years
0.11 years
4.17 years
9 years
Approximately what rate is needed to double an investment over five years?
Multiple Choice
14.4 percent
12.2 percent
8 percent
15.8 percent
The process of figuring out how much an amount that you expect to receive in the future is worth today is called
Multiple Choice
discounting.
computing.
multiplying.
compounding.
Approximately what interest rate is needed to double an investment over eight years?
Multiple Choice
12 percent
100 percent
8 percent
9 percent
You double your money in five years. The reason your return is not 20 percent per year is because:
Multiple Choice
it is probably a “fad” investment.
it does not reflect the effect of the Rule of 72.
it does not reflect the effect of discounting.
it does not reflect the effect of compounding.
Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year.
Multiple Choice
12.00 percent
1.12 percent
89.00 percent
0.89 percent
When calculating the number of years needed to grow an investment to a specific amount of money
Multiple Choice
the lower the interest rate, the shorter the time period needed to achieve the growth.
the interest rate has nothing to do with the length of the time period needed to achieve the growth.
the higher the interest rate, the shorter the time period needed to achieve the growth.
the Rule of 72 is the only way to calculate the time period needed to achieve the growth.
Level sets of frequent, consistent cash flows are called
Multiple Choice
annuities.
bills.
budgets.
loans.
When saving for future expenditures, we can add the ________ of contributions over time to see what the total will be worth at some point in time.
Multiple Choice
present value
future value
payment
time value to money
In order to discount multiple cash flows to the present, one would use
Multiple Choice
the appropriate compound rate.
the appropriate tax rate.
the appropriate simple rate.
the appropriate discount rate.
What is the future value of a $500 annuity payment over eight years if interest rates are 14 percent?
Multiple Choice
$6,809.72
$6,616.38
$6,750.14
$6,241.09
What is the future value of an $800 annuity payment over 15 years if the interest rates are 6 percent?
Multiple Choice
$12,720.00
$7,002.99
$18,620.78
$1,917.25
What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year forever?
Multiple Choice
$1,538.46
$650.00
$6.50
$1,000.00
Your credit rating and current economic conditions will determine
Multiple Choice
whether you get simple or compound interest.
the interest rate that a lender will offer.
how long discounting will affect you.
how long compounding will affect you.
What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?
Multiple Choice
$440.80
$1,938.96
$204.17
$1,197.81
If the present value of an ordinary, 4-year annuity is $1,000 and interest rates are 6 percent, what is the present value of the same annuity due?
Multiple Choice
$1,000.00
$1,060.00
$943.40
$1,040.00
If the present value of an ordinary, 10-year annuity is $25,000 and interest rates are 7 percent, what is the present value of the same annuity due?
Multiple Choice
$24,997.51
$23,644.49
$26,750.00
$25,000.00
Compounding monthly versus annually causes the interest rate to be effectively higher, and thus the future value
Multiple Choice
is affected only if the calculation involves an annuity due.
decreases.
grows.
is independent of the monthly compounding.
Loan amortization schedules show
Multiple Choice
both the principal balance and interest paid per period.
the interest paid per period only.
the present value of the payments due.
the principal balance paid per period only.
The simple form of an annualized interest rate is called the annual percentage rate (APR). The effective annual rate (EAR) is a
Multiple Choice
less accurate measure of the interest rate paid for monthly compounding.
concept that is only used because the law requires it, and is of no use to a borrower.
more accurate measure of the interest rate paid for monthly compounding.
measure that only applies to mortgages.